Telcos split costs on network expansion

Vodafone Hutchison Australia and
SingTel
Optus could expand infrastructure and site sharing agreements as both carriers look to free up costs and accelerate network upgrades.

Telstra’s two rivals in the mobile industry inked a deal in May to share existing sites and build 500 new base stations around the country over the next four years. The agreement also allows Vodafone to roam on Optus’s network in selected regional areas.

The Australian Financial Review revealed earlier this week that VHA’s multi-national shareholders, Vodafone Group Plc and Hutchison Whampoa, agreed to inject as much as $2 billion into the number-three carrier to fund chief executive Bill Morrow’s turnaround plan.

Mr Morrow has questioned the economics of expansion into sparsely populated regional areas and has called for all government contracts aimed at boosting regional mobile coverage to include open access arrangements. Industry sources say Vodafone could next year seek to expand its regional roaming agreements with Optus as it focuses on upgrades in urban areas.

By expanding the agreement, Optus could gain access to more sites around the country, reducing one of
Telstra
’s remaining advantages.

It is understood that under the present agreement both carriers have access to about 80 per cent of each other’s urban sites.

Optus chief executive, consumer, Kevin Russell, and managing director of networks, Gunther Ottendorfer, have both championed network sharing arrangements in previous roles at major European telcos as a way to reduce costs, which is increasingly important amid slowing growth in the mobile industry.

“We are all for collaboration because we think it brings benefits, we are open to that and we will talk with anyone interested in doing it," Mr Ottendorfer said.

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Telstra has made network superiority the centrepiece of its strategy in mobiles, which have been the engine room of its return to earnings growth at group level.

But Optus is determined to take on Telstra in network superiority next year. It announced yesterday it would trial China’s homegrown variant of 4G in Canberra early next year, and is planning a major rollout of a dual band 4G network early next year.

Vodafone is expected to use most of its new funding to pay back $1.3 billion in maturing debt, with the rest used to improve its metro and outer metro coverage.

While Vodafone’s stronger financial position should end speculation about its future in Australia it is unlikely to affect its cautious approach to upcoming spectrum auctions.

The government recently delayed decisions on reserve prices and lot sizes for critical “digital dividend" auctions early next year.

Industry figures believe that decision was influenced by concerns about VHA’s financial predicament. The government is aiming to fetch between $3 billion and $4 billion from the spectrum, which is highly suitable for 4G services. The spectrum sales will play a key role in its ability to deliver a budget surplus next year.

Mr Ottendorfer said

“From our perspective we have always said the 700Mhz is good spectrum," he said.

“We are waiting for the auction rules and processes, and we are certainly interested in participating, but the business case needs to make sense for us"